Glossary

Positive Ratchet Clause

Some investors or VCs add "positive ratchet clauses" to agreements. These clauses have the opposite effect to rachet clauses and give the company a benefit should it achieve or over-achieve it's targets. Investors see this type of clauses as benefiting both parties since the original owners keep more of the company (and benefit even more from their own hard work) and the investor may have the same value holding once the clause has been activated.

For example, when an investment was made in a company, a ratchet clause was included in the agreement that stated that if the company generated 110% of it's target profit over a given period, the number of the investor's shares would be reduced by 10%.

See also: Ratchet.